Dialysis Industry Mergers: Profits Rise as Outcomes Worsen

The nephrology community is poised for revolutionary change in the way we are incentivized to care for our patients. In July 2019, the President of the United States unveiled a new executive order, Advancing American Kidney Health, that will link outcomes to various performance measures; quality indicators; and most significantly, financial incentives. The latter is key, because the Centers for Medicare & Medicaid Services (CMS) and other stakeholders have recognized that prudent financial incentives are necessary to alter clinical practice and patient outcomes.

While we await the granular details about the ESRD Treatment Choices and Kidney Care Choices models, let's look back at how *imprudent* financial incentives played a role in clinical care.

Usual Benefits of Mergers Not Seen

Economists from Duke University's Fuqua School of Business took a deep dive into the financial incentives under which dialysis providers operated from 1998 to 2010. This was a time in which the dialysis landscape dramatically changed. Large dialysis organizations (LDOs) became increasingly prevalent and powerful as they consolidated multiple independent dialysis facilities. Nearly 9 out of 10 previously independent dialysis facilities merged. Eventually, 60% of all dialysis facilities were controlled by one of two LDOs and only 21% of facilities were still considered "independent."

Mergers can have positive or negative effects. In the dialysis industry, potential positive effects include consolidating resources, increasing efficiency, and providing medicines at lower cost. To test how mergers affected patients, the economists analyzed data from the US Renal Data System, the Annual Facility Survey, and the Healthcare Cost Report Information System to track changes in the following outcomes: dialysis adequacy (measured by the urea reduction ratio), anemia management (measured by erythropoietin-stimulating agent and intravenous iron use), hospitalizations, transplantation rates, staffing-to-patient ratios, and patient mortality.

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What they discovered highlights how financial incentives can go awry. Not a single outcome improved during the merger period, save for dialysis adequacy. Incident dialysis patients were almost 9% less likely to be wait-listed for kidney transplantation in a merged facility than one that remained independent. Concomitantly, patients were 4% more likely to be hospitalized in a given month if they received dialysis at a merged facility. Perhaps the higher hospitalization rates was due to staffing issues, because all three staffing ratios (patient to nurse and technician, patient to station, and nurse to technician) moved in unfavorable directions.

Perverse Incentives

The most egregious example of incentivized imprudence was seen in anemia management. Use of erythropoietin-stimulating agents (specifically Epogen [epoetin alfa]) skyrocketed by 129% in merged facilities. This rise in use of epoetin alfa did not benefit patients—they were 5% less likely to achieve target hemoglobin levels (10-12 g/dL). The financial incentives for epoetin alfa use were so great that this single medication accounted for 25% of revenue and 40% of profit at one LDO.

CMS reimbursed dialysis facilities for intravenous iron on the basis of the number of single-use vials used rather than the total dose of iron given, creating a perverse incentive to waste resources. One LDO began using 25 mg from four 100-mg-vials of Venofer to dispense a total of 100 mg.

The authors adroitly recount how merged dialysis facilities have failed our patients. The benefits of consolidation, seen in other industries, either did not materialize or favored the facilities, leaving patients worse off.

Concurrently, poorly planned and easily exploitable financial incentives raised profits at the expense of patient outcomes. Beginning in 2011, CMS made changes to its financial incentives by introducing "bundled payments" that would better align patient outcomes with facility actions.

This modern history of the dialysis industry is an illustrative case of how the common benefits of mergers (seen in other industries) can be negated by imprudent financial incentives and lack of true competitive market forces.

Now, a new set of financial incentives is being deployed through the Advancing American Kidney Health executive order. I hope that these incentives best align patient outcomes with physician and facility actions, and if not, that real-time data analyses can identify weakness and stimulate course corrections sooner rather than decades later.

Tejas Desai is a practicing nephrologist in Charlotte, North Carolina. His academic interests include the use of social media for physician, student, and patient education. He is the founder of NOD Analytics, a free social media analytics group that serves the medical education community. He has two wonderful children and enjoys spending time with them and his wife.

Follow Tejas P. Desai, MD, on Twitter: @nephondemand

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